Coronavirus (COVID-19): market fear as implied by options prices

Miguel Ampudia, Ursel Baumann and Fabio Fornari

Economic Bulletin Boxes, 2020, vol. 4

Abstract: The spread of the coronavirus (COVID-19) pandemic across the globe has led to significant declines in major equity indices and a spike in volatility to values above those recorded in the aftermath of the default of Lehman Brothers in September 2008. In line with the sharp rise in current risks, investors also raised their expectations of future risks, as shown by a widening of the risk-neutral density of future euro area equity returns. The increase in perceived risks accompanied a noticeable rise in investors’ risk aversion to negative tail events. More recently, and following the announcement of significant monetary and fiscal policy stimulus, the estimated tail risk aversion has been declining, while expected risks remain elevated. JEL Classification: G10, G12, G13

Keywords: (Tail) risk aversion; coronavirus; COVID-19; equity returns; options prices (search for similar items in EconPapers)
Date: 2020-06
Note: 2445760
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Citations: View citations in EconPapers (4)

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